NEW REPORT-Prospect of FDI Led Industrialization in Ethiopia (Critical Analysis)

This is the first edition in a series of Wazema Institute Briefing Papers on Ethiopian Economy. We have focused on the Ethiopian government’s ambiguous Foreign Direct Investment-Led Industrialization plan. Specifically, we paid attention to its latest investments on urban Industrial Parks and Zones. Though novel, the projects have already elicited a lot of political and policy debates within the ruling part. This briefing paper pays a discriminate emphasis on what we consider are key challenges to realize Ethiopia’s Industrialization.

During the last decade, the Government of Ethiopia claimed that the country’s economy has been growing at an average rate around 10 percent. However, leaving aside the validity of this staggering figure, the share of the industry sector is still very low and unchanged. Unlike what has been observed in most fast growing economies, manufacturing in Ethiopia has been lagging and there is no sign of structural change that shifts labor from low to high productivity sectors.

This study also illustrates in a comparative analysis how Ethiopia is currently far less competent than other developing countries in South East Asia, and Latin America and to attract efficiency- or market-seeking FDI firms – that are currently leaving the developed and emerging economies in search of cheap labor and market.

To sum up, despite the Government of Ethiopia’s claim to pursue FDI-led industrialization policy, the country’s performance in all of the three knockout factors (i.e. basic infrastructure, vital Institutions and political stability) for attracting efficiency- or market-seeking FDI firms is inferior. Similarly, the country’s relative position in some of the other important factors (including monetization of the economy and investment incentives) are lower. Following from this, the paper argues what specific policy and strategic imperatives need to be put in place if Ethiopia is to make serious strides toward rapid manufacturing and service based industrialization. DOWNLOAD THE FULL ANALYSIS HERE